SKS Micro Finance – Spat continues

The SKS MicroFinance spat involving the founder-promoter Vikram Akula and the board on one side and the erstwhile CEO Mr Suresh Gurumani continues. In the past two weeks while none of the sides have openly traded allegations, media reports indicate that the spat is still very much alive.

Analysts across the board have agreed that such a sudden change in management is not good for the company and its perception with investors.  Mr NR Narayan Murthy’s (of Infosys fame) PE fund Catamaran has a stake in SKS Micro had reportedly advised the company to make a statement clarifying the details of sacking Mr Suresh Gurumani. The news article also states that a draft statement, circulated amongst board members, mentions investors requesting Mr Vikram Akula to return to a full time operational management position. This is purportedly the reason for the sacking of Mr Suresh Gurumani. However we do not believe this is the full story as in such as case Mr Suresh Gurumani would have been given another profile within the company or given adequate time to decide and move on. A sudden departure is always seen with suspicion.

SEBI, the regulator, has also asked the company to explain the reasons for sacking the CEO. SKS Micro has apparently responded to the query.

It has since transpired that Mr Suresh Gurumani, though sacked as the CEO, continues to be a director on the board of SKS Micro on the back of a Andhra Pradesh High Court Order. The order requires the company to continue Mr Suresh Gurumani as a director of the company. A bigger boost for Mr Suresh Gurumani is that same order also prohibits the new management and / or the CEO from taking any major policy decisions.

We believe that this is in essence bad corporate governance. We expect companies to be more transparent in their major policies, including those related to human resources. The top management drives policies which in turn is likely to drive growth. Any sudden changes therein unsettles investors and undermines the seriousness of founders to professionalize the management. Today’s board and management should remember that investors are well aware of inter-personal friction amongst management, and an open address of the issue is more appreciated.

The board of SKS Micro is slated to meet again on 22 October 2010, and Mr Vikram Akula and Mr Suresh Gurumani are both expected to be present. For investors, we can hope that the board first debates and approves the second quarter (Sept-2010 end) results and then debates the on-going issues within the management.